Total Taps Chinese Banks to Fund Russian Project

Quand Washington est en guerre contre le reste du monde.

Quand la démocratie de Washington ne satisfait que les oligarques (1), (2), le monde entier va grogner.


Extrait de: Total Taps Chinese Banks to Fund Russian Project, The Wall Street Journal, By BRIAN SPEGELE and  ANDREW PEAPLE, The Wall Street Journal, March 23, 2015 7:50 p

BEIJING—Total SA is pushing ahead with a $27 billion natural-gas project in the Russian Arctic, but it will seek a big chunk of the financing—as much as $15 billion worth—through Chinese banks in local currency and euros.

The decision comes amid worry that Western sanctions against Russia could complicate the sort of dollar-based fundraising that is more typical for big energy projects.

Total’s Arctic project—years in the planning—doesn’t run afoul of sanctions itself. But one of Total’s partners in the Yamal liquid natural gas venture is Russian energy firm OAO Novatek, in which Total has a minority stake. Another big Novatek shareholder is Gennady Timchenko, who has been specifically targeted by U.S. sanctions.

The U.S. and Europe have slapped a series of economic sanctions on Moscow in recent months amid a standoff over Ukraine and Crimea. Under the sanctions regime, rules limit the transfer to Russian firms of technology related to some unconventional drilling techniques, including shale-oil recovery methods and some Arctic and offshore oil projects. But Yamal, a natural-gas project, isn’t specifically affected.

Total has previously signaled its plans to meet some of the big costs of the project through fundraising from Chinese banks. But the size of the funding goal disclosed by Chief Executive Patrick Pouyanné in an interview could make the Yamal project the largest reported private corporate deal involving Chinese banks. The biggest deal of that nature so far is a $12 billion syndicated loan to Daimler AG in 2013, in which two of the 34 banks were Chinese.

While the LNG project itself wasn’t targeted by sanctions, any big Russian project faces heightened scrutiny these days by U.S. and European banks. Mr. Timchenko’s involvement wouldn’t necessarily make U.S. dollar funding illegal, but would intensify the scrutiny. Mr. Timchenko sold off his large stake in global trading giant Gunvor Group Ltd. just before he was cited for U.S. sanctions last year.

Mr. Pouyanné said there was “a strong willingness to build the project financing” from Chinese financial institutions. Total could tap Chinese banks for between $10 billion and $15 billion in yuan- and euro-denominated funds. “It’s not an easy task,” he said. “We would have preferred to do it with dollars.”

While tapping China’s financial system would solve the challenge of sanctions, it presents other risks, Mr. Pouyanné said. “The oil-and-gas business is mainly a dollar-driven business, so when you begin to use other currencies you have some currency risks,” he said. “You can hedge euros easily. It’s more complex with the yuan or ruble.”

The Yamal LNG project will have a capacity of 16.5 million metric tons a year of LNG—a supercooled form of natural gas that can be loaded onto ships for export. Much of that will be shipped to China, according to Mr. Pouyanné. Chinese companies have been aggressively working to raise imports of LNG and piped natural gas to meet growing industry demand as well as a cleaner power-generating alternative to coal.

The funding comes as Total and other big energy producers struggle with lower oil prices. The French company has already said it would seek to sell $10 billion in assets, cut capital expenditure and reduce staff by about 2,000 by 2017.

 “For me, I see this period as an opportunity to clean up the cost base of our company,” said Mr. Pouyanné, 51 years old, who took over as CEO last year after Total’s previous chief, Christophe de Margerie, was killed in a plane crash in Russia.

Like Mr. de Margerie, Mr. Pouyanné is embracing investments in politically risky areas, but many of his competitors have also bet big on Russia and now find themselves in a tight spot. Exxon Mobil Corp. has put some of its Arctic drilling plans on hold in Russia because of sanctions. BP PLC, meanwhile, is a big shareholder in OAO Rosneft. That state-owned firm is run by Igor Sechin, an ally of Russian President Vladimir Putin. Mr. Sechin is on the sanctions list.

Mr. Pouyanné said he aims to have a financing agreement by the middle of 2015 but didn’t say which Chinese institutions might be involved. Besides Total and Novatek, China National Petroleum Corp. has also invested in Yamal.

Total expects Russia will be its most important region for oil and gas output by 2020 with production of about 400,000 barrels of oil equivalent a day. Last year, Total produced 2.15 million barrels a day of oil equivalent.

Meanwhile, Mr. Pouyanné said Total’s project with another Russian company, OAO Lukoil, to explore the vast Bazhenov shale reserves was on hold because of sanctions. He said Total hadn’t sought exemptions from the European Union.

Mr. Pouyanné also said Total expects oil-price volatility to continue through 2015 as oil supplies, driven partly by a rising tide of new production in the U.S., outstrip demand. “I think the price will not stabilize,” he said. “The idea that you will stabilize something is wrong. Volatility is in the commodity business.”

Mr. Pouyanné said Total is focusing on costs amid oil’s price slump, though he sees little prospect for big oil-sector deals for the time being.

“Our anticipation is that the increase of supply will remain above the increase of demand in 2015,” he said. “For me, I see this period as an opportunity to clean up the cost base of our company.”

More broadly, Mr. Pouyanné said it was too soon for big deals by companies struggling to weather the downturn. “I think it’s a little fantasy of bankers,” he said. “Let me be clear: It’s quite premature.”